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  • Importance of Investing In Employees Provident Fund: A Comprehensive Guide

    Published on February 15, 2024

    Employees’ Provident Fund (EPF) is a social security scheme provided to employees in India. It is a retirement savings scheme where both the employer and employee contribute 12% of the employee’s basic salary plus dearness allowance to the provident fund. This contribution is made to build a retirement corpus, which is paid out to the employee when they retire from their job or after a certain age.

    If as an employee you want to keep track of your EPF balance, PF balance check is an easy method offered by the EPFO website. You must have your Universal Account Number (UAN) and mobile number registered with the EPFO for balance check. The website provides the EPF balance details, passbook and transaction details, timely notifications, etc.

    In this article, we will discuss the importance of investing in Employees’ Provident Fund and why it is essential for employees to make contributions towards it.

    Retirement Savings

    Retirement planning is the most important benefit of investing in EPF. The process of retirement involves financial preparedness to maintain the same standard of living post-retirement as before, and EPF comes in as a crucial tool here. It provides a substantial retirement corpus to the employee, which is paid out upon retirement. The interest rate on the EPF balance is much higher than that offered by savings banks at around 8.5% (2021-22). Additionally, the contributions made to the EPF scheme allow employees to create a habit of saving a portion of their salary, which can help them maintain their lifestyle after retirement.

    Tax-benefits

    Another key feature of EPF investment is the tax benefits. The contribution made towards EPF is eligible for tax exemptions under section 80C of the Income Tax Act (up to INR 1.5 lakhs for 2021-22). Similarly, the interest earned from EPF is also tax-free. Withdrawals made after five years of continuous contributions towards EPF are also tax-free. However, if withdrawn before five years, the entire withdrawal amount is taxable.

    Compound Interest

    Compound interest is an added benefit of investing in EPF. As the amount contributed towards EPF compounds annually, any interest earned on the principal and the interest earned from the previous year get added to the principal amount, generating higher returns every year.

    Loan facility

    EPF account holders can avail of the loan facility against the balance in their EPF account. The loan can be used for various purposes, such as medical emergencies, child’s marriage, home renovation, etc. The interest charged on such loans is lower than a personal loan, and the borrower repays the loan with interest to their EPF account.

    Easy Withdrawal

    EPF account holders can withdraw funds from their account for various reasons, such as medical emergencies, purchase of a new home or land, payment of home loans, marriage of self or children, etc. This provision helps employees meet their financial goals without burdening themselves with high-interest loans or other debt.

    Beneficiaries

    In the unfortunate event of an employee’s death, the nominee or legal heirs of the deceased employee can claim the balance in the EPF account and the pension benefits, if opted for by the employee.

    In conclusion, investing in Employees’ Provident Fund is a crucial decision employees must take for financial preparedness at the time of retirement. Additionally, the tax benefits, higher interest rates, and compound interest make EPF an attractive investment option for salaried individuals.

    Also, it is important to keep track of your EPF balance regularly through the online PF balance check facility provided by the EPFO. This will help you monitor your account, track your contributions and balance, and ensure timely withdrawals or loan facilities, if needed.

    However, it is essential to evaluate all the pros and cons of investing in EPF carefully and analyze how it aligns with your investment goals and financial situation before making an informed decision.

    Disclaimer: The information provided is for educational purposes only and should not be construed as financial advice. Please consult a financial advisor before making any investment decisions in the Indian financial market.

    Summary:

    EPF is a social security scheme provided to the employees in India intending to create a retirement corpus and savings habit. The contribution towards EPF account gets eligible for tax exemptions under section 80C of the income tax act, and the interest earned from EPF is also tax-free. EPF offers compound interest and provisions like a loan against the account balance and easy withdrawals. One must keep track of their EPF account by online PF balance check provided on the EPFO website. However, they must evaluate all the pros and cons before investing in EPF.

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